It’s Never the Right Time to Reform Fannie and Freddie

Formerly government-sponsored—and now government owned—mortgage giants Fannie Mae and Freddie Mac are projected to add about $290 billion to America’s taxpayer tab this year alone. You might think this would make them ripe for swift reform. But instead, the Obama administration stalled throughout the year, leaving out substantive changes to the two entities from its recent financial overhaul. Now, reports the Wall Street Journal, it looks like some of our nation's housing policy braniacs may be cooking up more excuses to delay action:

All year long, the Obama administration has defended its decision to postpone the debate over the fate of Fannie Mae and Freddie Mac by arguing that it first needed to put the housing market back on track.
Now, as mortgage-industry executives and government officials prepare to meet for a summit on Tuesday to begin those discussions in earnest, policy makers are facing an unexpected problem: The housing market appears to be stalling.

That will make officials more cautious in considering any dramatic overhaul, because a shaky outlook further underscores the market's heavy dependence on Fannie and Freddie, which together with the Federal Housing Administration are backstopping nine out of every 10 new loans.

"It pulls the debate in the opposite direction," said Howard Glaser, an industry consultant. "If we're stuck in the midst of this semi-permanent housing crisis, the question of the federal role becomes almost intractable."

Hold on a minute. Why is the housing market going soft? Part of the reason is almost certainly that the extended federal home-buyer’s tax credit, which required buyers to sign contracts before the end of April and close by the end of June, massively inflated the housing market at the beginning of the year. Lots of sales that probably would’ve otherwise occurred after those deadlines were simply moved back a few months—and federally subsidized as a result. So the uptick in the housing market earlier this year likely wasn’t a natural feature of the market; it was artificially stimulated. Now, with the federal adrenaline shot wearing off, it’s slowing down. Is that really a reason to stimulate it more? Maybe I don't actually want to hear the answer to that.

The Reason Foundation’s Anthony Randazzo argued that it’s time to kick Freddie and Fannie out of the housing market back in March.

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  • ||

    "If we're stuck in the midst of this semi-permanent housing crisis, the question of the federal role becomes almost intractable."

    We can make this crisis permanent, doggone it! Can, and should!

  • ||

    Whether housing prices are rising, falling, or staying the same, whether the market is hot, cold, or just right, it's never the right time to reform them. Oh, everyone's in favor of reform later.

  • ||

    Follow the money.

  • DRM||

    Actually, it's true, it's never the right time to reform Fannie & Freddie. It's merely always the right time to liquidate them and shut them down forever.

  • Tman||

    It's always fascinating to see the Broken Window Fallacy played out in such grand circumstances.

    Instead of a broken window, we have a $290 billion bailout. Good times.

  • ||

    There's a solution to the housing crisis:

    Let housing prices fall until people can buy them.

    Oops, that might mean the banks lose more money.

  • ||

    That's un-American.

  • DesigNate||

    How dare you suggest something logical! The scandal.

  • ||

    What the hell is so bad about cheaper housing? I thought every goddam pandering pol is for more affordable housing, yet when a market correction that make housing more affordable appears, both fucking major parties line up to prevent it from happening.

    I beginning to think politicians are being less that candid with us.

  • ||

    Yes, pandering about affordable housing and then propping up artificially inflated real estate prices is absurd. It makes about as much sense as whining about obesity while subsidizing the makers of corn syrup and corn/soybean oil, or wringing your hands about cigarette smoking while subsidizing tobacco. Who in their right mind would do such things?

  • ||

    But ... you can have BOTH! All you have to do is encourage people to BORROW MORE MONEY! And have the government GUARENTEE THE LOANS!

    I mean, it's a win-win-win situation, right?

  • robc||

    What the hell is so bad about cheaper housing?

    Tax base falls.

  • ||

    Except (for the most part) in California, AIUI.

  • ||

    What the hell is so bad about cheaper housing?

    Tax base falls.

    No, seriously, we're looking for bugs here, not features.

  • Rhywun||

    "I thought every goddam pandering pol is for more affordable housing"

    You're confusing affordable housing with "affordable housing". The one they're for is the one that's a euphemism for a totally different beast.

  • ||

    In my water skiing days it was always better to simply jump off the boat into the water rather then slowly descend from the ladder into it.

    I don't know how many times a new skier would get waist deep then give up...but the ones that jumped in or were pushed in always ended up at least giving a few attempts at trying to get up.

    It really is not that cold and once you get over the initial shock it can actually be nice to cool off.

  • ||

    Now, as mortgage-industry executives and government officials prepare to meet for a summit on Tuesday to begin those discussions in earnest

    No lobbyists, though.

    Right?

    RIGHT?

  • ||

    What could possibly go wrong in a meeting between executives of an industry that profits hugely from a government-created and guaranteed secondary market, and a bunch of Congressmen?

  • Fatty Bolger||

    You might think this would make them ripe for swift reform.

    Silly Peter. In Washington, "reform" is just code for increasing federal power and opportunities for graft. How could Fannie and Freddie possibly be improved in that?

  • Dr Duck||

    We should try it with just one of them. Flip a coin: head, we shut down Fannie. Tail, Freddie. If it goes OK, do the other one. If not... oh well.

    And what about Ginnie Mae? We never hear about Ginnie these days. Kill her too?

  • T||

    If we got the fed out of the business of guaranteeing loans, she'd die a natural death.

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